Knowledge2008

Knowledge2008 Day One Highlights

Chardonnays, merlots and enterprise resource management systems. This week, Napa Valley is more than just about the wine. Knowledge2008 is bringing nearly 40 CIOs to Napa Valley to network and learn from one another about solutions to their most pressing issues. This newsletter highlights the first day of proceedings at Knowledge2008, which is graciously hosted by Pacific Gas and Electric (PG&E).

The demands on today's utility CIO are unprecedented. The days of "pure" technology decisions are over. Today's CIO must grapple with a complex set of business, regulatory, operational, financial and customer criteria, in addition to meeting a demanding set of technical requirements. Day one of Knowledge2008 immersed CIOs in the many issues they face that go far beyond the IT department. The day began with a look outside the IT department and even outside the energy utility industry.

The Big Picture

Tom Bottorff, Senior Vice President and Regulatory Relations, PG&E, set the backdrop for the day's sessions by discussing the key trends in the energy utility industry. In terms of challenges, Bottorff's list included many ongoing issues-from aging assets to volatile energy prices-but he also added a new item to the list: liquidity. Given today's economic climate, utilities not only are concerned with funding new capital projects, but also with accessing funds to meet their ongoing operations needs. At the same time, however, tough times and higher electricity prices provide an opportunity for utilities to give customers more information and control in order to help customers deal with
these challenges.

Revolutionizing Communications for Utilities

Kathy Walker, Chief Information & Network Officer, Sprint, considered the similarities between CIOs in the telecommunications and energy utility industries and how they can ultimately work together. Like energy utilities, telecommunications companies must keep up with growing demand and better manage capacity. Both industries must also be competent in managing networks and effectively mobilizing workforces. In terms of working together, the common thread between these two industries is communications. The growing penetration of Wi-Max and improved machine to machine (M2M) communication capabilities offered by telecommunications companies provide new opportunities for the two industries to work together.

Meetings of the Minds

Roundtables throughout the day took participants deeper into the challenges and opportunities highlighted in the opening sessions. These roundtables also provided a closer look at key relationships between the IT department and the rest of the utility company.

The credit crunch: The recent financial meltdown of the credit markets had participants worried about the capital expenditures they will be expected to make. Utilities will likely slow down or delay investments in smart meters, grid infrastructure and other areas until the credit markets start functioning again.

Renewables: Participants expressed concern that it will be very difficult to get the regulatory incentives in place to provide a return on investment for vitally needed projects. Some participants said solar is not competitive today and could not be widely deployed without government subsidies. Yet given the chronic condition of the U.S. economy, where would those subsidies come from? Another part of the discussion focused on the limitations of wind. For example, despite ample wind resources in one part of the country, environmentalists have been blocking the deployment of the wind turbines in an area that would provide the most wind generation potential.

Outsourcing: Utilities are interested in outsourcing, but utilities' unique requirements limit their ability to effectively leverage benefits. These limits include:

• Operations needs: Participants discussed the need to have their internal operations running efficiently before they looked to outsourcers for solutions.
• Support needs: They also voiced frustration over support, particularly when system changes cannot happen in the desired timeframe due to an outsourcer taking care of multiple clients.
• Risk concerns: Risk was another key issue for participants as utilities want to have people "on the ground" that are accountable for the utility's performance and they want them there when they need them.

On the "upside" of outsourcing, participants did identify positive experiences with outsourcers. For example, an outsourced solution can enable better management of IT resources and more efficient use of mainframes as utility computing requirements change over time. Furthermore, outsourcing help desk and applications tasks may have value if properly managed. At the same time, operational or "core business" outsourcing functions have more risk and are less desirable for many CIOs.

Smart grid and the intelligent utility: Given the diverse range of topics in this space, participants discussed everything from the basics of how to better connect the utility with the consumer to effectively integrating renewables into the grid. Even with the exciting possibilities of smart grid and intelligent utility, participants still grappled with how to manage and turn enormous amounts of data into real information as well as how to fund all of these initiatives.

SOA integration: The CIOs agreed that the SOA is the wave of the future for integration. About half of them are using open standards for SOA and believe that the movement towards open standards will continue to grow.

The CEO and IT: IT is undergoing a cultural shift from a former back office function placed in a box by traditional CEOs to an integrated part of the utility business. That is not a painless process for many CIOs. Some participants discussed the challenges of convincing the CEO that IT is not a cost center, but rather a strategic partner. An essential selling point to change this mindset is showing how IT is a means to cost-cutting. Another is demonstrating IT as an enabler of the smart grid cost-effectively. Many organizations still have the CIOs report to the senior vice president level with the diminished importance that might entail. On the other extreme, a CEO might consult with the CIO several times a week to think strategically about initiatives two to three years in the future.

Operations and IT: In many cases, the technology itself is not the greatest challenge for CIOs. A significant challenge is effectively establishing relationships with and communicating the value of IT to groups across the utility company. For example, in such an asset-intensive industry, some participants found it challenging to clearly communicate the concept that software does "wear out". This fact is becoming increasingly important as many utilities must upgrade many existing systems to accommodate more advanced technologies for the smart grid and intelligent utility. In terms of relationships, participants still faced challenges working with operations groups, but those relationships were improving. Some participants found success with deploying account managers to collaborate with operations groups and helping operations understand how IT can lift the burden of managing and securing IT systems. This ultimately enables operations to focus on using a technology as opposed to maintaining it.

Security and compliance: This discussion focused on the North American Electric Reliability Corporation (NERC) Critical Infrastructure Protection (CIP) standards. Participants had concerns in many different areas. For example, how much information can utilities share with each other and should they even share? Furthermore, how much information are they already sharing-either on purpose or inadvertently-with contract employees, other utilities, contractors or even other participants at conferences? Participants also discussed the differences in terms of who at their company was responsible for the NERC CIP standards. Each utility was unique, with responsibility spanning IT, transmission and distribution, operations, legal and shared services, to name a few. Along the same line, participants discussed the costs of the NERC CIP standards and whose budget those costs fall under, which varied too. In addition, participants considered the impact of the NERC CIP standards on new initiatives. Utilities putting thousands and possibly millions of end points on the system through smart grid and intelligent utility efforts must consider NERC CIP standards in those deployments. Security concerns need to be addressed and intertwined right from the start of the project. The same holds true for mobile computing and security efforts. Utilities must protect devices in the field with personnel.
More discussion on security and compliance

More Discussion on Security and Compliance

On top of the security and compliance roundtable discussion, Lynn Constantini, CIO, NERC, took to the podium to provide an update on NERC's CIP standards. After the Federal Energy Regulatory Commission (FERC) required significant improvements the CIP standards, NERC wasted no time moving ahead with a committee to revise the standards. However, as these revisions are moving forward, utilities are still subject to sanctions and penalties for not meeting the standards already in the "compliant" stage.

Diverse PG&E Panel Talks about Smart Grid and Intelligent Utility

An afternoon panel brought together PG&E senior executives from across the company to discuss their smart grid and intelligent utility efforts. The group included:
• Tom Bottorff, Senior Vice President and Regulatory Relations, PG&E
• Christopher P. Johns, Senior Vice President and CFO, PG&E
• Patricia Lawicki, Senior Vice President and CIO, PG&E
• Brad Whitcomb, Vice President, Products and Services, PG&E
• Geisha Williams, Senior Vice President, Energy Delivery, PG&E

The group first discussed smart grid and intelligent utility drivers from many perspectives including:
• The customer: The smart grid and intelligent utility can unleash information to help customers understand their energy use and increase satisfaction. When customers have access to the true cost of energy, they can then take more effective action to reduce costs.
• Operations: A fully integrated automation scheme can reduce the number of power outages and their duration. A smarter grid can also enhance condition assessment, so a utility can tell that something is wrong before an outage occurs and then repair it more efficiently.
• Regulatory: Regulators have encouraged these initiatives, particularly for metering and time of use rates.

Despite these drivers, the key question is still how do utilities pay for it today? In addition, there is still uncertainty about the financial benefits of smart grid and intelligent utility initiatives. For example, will new products and services generate additional revenue and, if so, who will benefit from that revenue? Furthermore, what are the savings associated with enhanced reliability and a more efficient energy supply? On top of these questions is the complication of a tough economic climate. Utilities will have to focus on investments with clear benefits, so what does that mean for smart grid and intelligent utility investments?

Beyond drivers and benefits, the discussion also focused on the role IT plays in the smart grid and intelligent utility. IT will have to put the foundations in place-including networks, new systems and service-oriented architecture (SOA)-to enable the "plug and play" demands of these initiatives. Ultimately, the smart grid and intelligent utility are not an "off the shelf" product, but rather a series of projects that will have to be frequently upgraded in order to keep up with technology advancements.

Pine Ridge Winery Tour, Reception and Dinner

After the day's sessions, participants retreated to the Pine Ridge Winery for a wine tour, reception and dinner. Aside from sampling the winery's highly acclaimed wines, participants enjoyed dinner in the impressive Cabernet Caves, a subterranean dining room 130 feet underground and 300 feet into a hillside.